Yes Britain is angry about tax, but it's not ready for a revolution

Protesters gather in Parliament Square calling on the Prime Minister to resign over his father's tax affairsCredit:
Dan Kitwood/Getty

Jeremy Corbyn is riding high. Well, relatively. The polls jumped in Labour’s favour following David Cameron’s disastrous week spent prevaricating about his tax affairs. And for the first time, Mr Corbyn has a higher approval rating than the Prime Minister.

Labour is correct to conclude that a spotlight on taxing the rich helps them. British voters want the rich to pay the tax rates that the Government says they are meant to pay. But it would be rash for Mr Corbyn’s supporters to conclude that the country is getting into a revolutionary mood. There is little evidence that the public has an appetite for the kind of ratcheting up in punitive tax rates that were popular during the 1970s heyday of the old Left Mr Corbyn represents.

A new book by a pair of American economists, Kenneth Scheve and David Stasavage, puts a finer point on this. The book, “Taxing the Rich,” is a history of developed countries’ tax policies on the wealthy since the introduction of the first income tax by the UK in 1799. That tax, at 10 per cent, was deemed an extraordinary measure required to fight the Napoleonic wars. And what is most striking about the data Drs Scheve and Stasavage have collected is that every significant jump in the top rate of tax is associated with one thing: war.

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Up until World War One, in fact, income tax rates were at what we would now consider negligible levels. The UK’s decision to raise a “super tax” in 1909, for example, brought income tax to around 8 per cent. That had changed dramatically by 1925, by which time the top rate of tax had reached 50 per cent. It rose over 95 per cent after World War Two and was still above 80 per cent for the next couple of decades until Margaret Thatcher brought it back down to the more familiar levels seen today. Inheritance tax followed a similar path, as did the top tax rate rates in other countries, although most were not as extreme as ours.

Of course, the wars didn’t happen in isolation. The 20th century also brought universal suffrage and the rise of labour politics; with both, Left-wing ideas about fairness grew in currency. So, drawing on data from 20 countries, the taxation study conducted by Drs Scheve and Stasavage tested how much of an association there is between raising taxes on the rich and a variety of other factors. They wanted to know what special combination of factors, such as inequality, the expansion of voting rights or the election of Left-wing governments, prompts societies to soak the rich.

What they found defies expectations. Despite there being some periods in which these factors were associated with big tax rises, none of them can fully explain, across all countries, why tax rates on the rich reached such punitive levels. The one factor that did explain these tax rises, however, was the eruption of wars that involved the mass conscription of the voting public. Why? Because with every family having paid such a high price for the country’s freedom, it was deemed morally indefensible for the rich to hold anything back, especially where rich families had been better able to avoid the draft. In short, paying super-taxes was a compensation for having ridden out the wars with less pain than others.

Much of the Left now believes that we are in the aftermath of a similar catastrophe. The downturn triggered by the financial crisis was as deep as the recession triggered by the Wall Street Crash. It and the quantitative easing measures taken as a result have pushed up inequality. And it is a trauma that, as far as the public is concerned, many of the rich have escaped. Mr Corbyn’s election to leadership of the Labour Party is testament to the revival of radical Left ideas in response. And it might be easy to go one step further, to think that the public is therefore ready for another dose of revolutionary politics.

That seems unlikely. It took mass conscription of the country’s young men, the deaths of one in every fifty of our people and rising fury at the elite that had led us there to shake Britain out of its traditional hierarchy. Wealth was taken to pay for the disaster that had befallen us. The threshold for popular anger is probably lower than it was then, but if this study is correct, then it takes a dose of much greater horror than a recession to rouse the beast of radicalism.